So what could possibly go wrong?
Software driven financial markets utilize powerful computers and algorithms. Code and what is called “quantitative management” have become a common way of trading shares and derivatives. The investment management industry is becoming software-based as much as any other modern industry. In this case, mathematical models decide when and where to buy and sell financial instruments. No human intervention is soon needed.
“Our humans have done pretty well compared to most humans, but we definitely see a trend where machines do more and more in markets. They’re becoming more powerful, so they’re going to do more.” Sudhir Nanda interview. Financial Times, April 25th.
Stock exchanges have data centers where traders can place the programs containing their trading algorithms. The exchange has a market system that takes in and connects the “buy” and “sell” signals. The way the system works is that some event triggers the decision to trade. An algorithm seeks where and when the best price can be found and another makes the deal. The technology behind this is so advanced that tens of thousands of trading signals can be sent to the matching system every second. The product of the software is profit. It aims to extract value from the opportunities that are offered by very small price differences sometimes lasting for less than a second. Information asymmetries turn into revenue.
On September 13, 2005 the game “World of Warcraft” opened up a new area for advanced players. A massive dragon called Hakkar inhabited it. One of the weapons the dragon had was the capability to spread a disease called “Corrupted Blood”. The special thing with corrupted blood was that when a player was infected, other players nearby also caught the disease. The disease passed on between any nearby characters, and would kill all lower level players, while higher-level players could recuperate. The disease was meant to disappear as time passed or when the character died. But due to a programming error, not only characters, but also their pets were infected. As a result from the combination of the way human beings act and powerful, but faulty software, the infection started to spread widely through the whole virtual world.
The “Corrupted Blood Incident” as it was later called, was described as a case study of the spread of real life diseases. It originated in a remote, largely uninhabited region and was carried by travelers to other regions; hosts were both human and animal.
Player responses varied but resembled real-world behaviors. Some characters with healing abilities volunteered to help, some lower-level characters without these skills were willing to guide people away from infected areas. Some characters would flee to uninfected, remote areas, while some wanted to go and see the ground zero, the place where it all started. Some “terrorists” intentionally attempted to use the opportunity to spread the disease to others.
Players in the game reacted to the disease as if there was real-life risk: “The major towns were abandoned as panic set in and people rushed to evacuate to the relative safety of the countryside”. What the programmers intended to be a new, interesting challenge for the most advanced and most powerful players in a geographically limited area turned into a global epidemic that rapidly killed hundreds of thousands of weaker players.
The programmers had no idea what was going on.
Nothing seemed to work as they tried to regain control. Ultimately, the programmers resorted to a strategy that may not be an option for dealing with real world crises. They pulled the plug.
They rebooted the whole world.
The characters in the games live in the digital world of software. When they die during a combat, they come back to life after the player leaves the computer screen and returns to the kitchen table for dinner. They can resume the game after dinner. Most of the digital systems we have outside of games work differently. Everything that happens there affects the physical world.
The two worlds are not separate but form a cohesive whole. People make mistakes, people are going to do stupid things and software is always going to have bugs, unforeseen issues. Financial crash scenarios follow the infection logic of Corrupted Blood amazingly closely. There is one crucial difference: at the moment there is no way to reboot the global financial system if millions of weaker companies start to die as a result of software issues that spread through the system.
John Dewey wrote: “the greatest gift of thought is that it allows us to imagine things not yet experienced, based on what we know in and about the present — it enables us to act on the basis of the absent and the future.”
Technology can replace us. Technology can extract value and serve us. But technology can also augment our human capability to create value and to think.
Instead of just imagining the future, perhaps, we should try to imagine a desirable future.
Credits Jeremy Grant and Michael Mackenzie
